Saturday, November 4, 2017

"The Fed Actually Begins its QE Unwind "

From Wolf Street:

But what’s happening with mortgage-backed securities?
Thursday afternoon, the Fed released its weekly balance sheet for the
week ending November 1. This completes the first month of the QE
unwind, or “balance sheet normalization,” as the Fed calls it. But
curious things are happening on the Fed’s balance sheet.

On September 20, the Fed announced
that the QE unwind would begin October 1, at the pace announced at its
June 14 meeting. This would shrink the Fed’s balance sheet by $10
billion a month for each of the first three months. The shrinkage would
then accelerate every three months. A year from now, the shrinkage would
reach $50 billion a month – a rate of $600 billion a year – and
continue at that pace. This would gradually destroy some of the
trillions that had been created out of nothing during QE.

Over the five weekly balance sheets since the QE-unwind kick-off
date, total assets rose initially by $10 billion from October 4 to
October 18 and then fell by $14 billion, for a net decline of $4
billion. By November 1, total assets were $4,456 billion:

The Fed is supposed to unload $10 billion in October. Instead it
unloaded $4 billion. And the variations from week to week are entirely
in the normal range of the prior months.
The chart below shows the Fed’s total assets since 2007, covering the
entire QE period from the Financial Crisis on. The tiny $4-billion
decline in October gets lost in the massive table mountain of assets:

But a first real step has happened.

As part of the $10 billion that the Fed said it would shrink its
balance sheet in October, it was supposed to unload $6 billion in
Treasury securities...MUCH MORE.